Basic Framework For Getting Out of Debt

[james.hendrickson]

I know all you guys know this stuff already, and most of you have a much higher net worth than average. So, I'm posting this for all the lurkers in the forums, as well as the casual passers by who have debt.

Some basic steps for getting out of debt:

1) Get an emergency fund so you don’t take on debt when something comes up. Six months of expenses is optimal, but even a month or two is way better than nothing at all.

2) List your debts. By amount and interest rate. This way you know where you stand. This may be psychologically difficult, but the payoff for dealing with the debt is improved credit, more confidence and more freedom.

3) Use the debt snowball. Pay your debts from smallest to largest, or most expensive to least expensive.

4) Avoid new debt. No new credit cards or loans. Period. If you are in a hole, stop digging.

5) Go all cash. After everything is paid off, switch to all cash. This is especially the case if you have challenges with overspending. Psychologically, people view paper money as more real than electronic money, so they are less willing to part with it. Going to all cash should help you avoid overspending as you're letting psychology work for you, not against you.

[bjl584]

I'd wedge something in there about boosting income. A part time job or side hustle of some kind

[Homebody]

I would add that going all cash while paying off debt is a good thing to try also. Envelope budgeting. I have never done it fully, but am thinking now that we are retired I may.

[myrdale]

I'd include working out a budget as well. Without knowing how much is coming in and going out, it is difficult to control spending. Regardless of if this is a six month marathon to pay off a couple of credit cards, or a ten year slog for a mortgage or student loans, having a budget will help you focus your aim.

[crazyliblady]

I know all you guys know this stuff already, and most of you have a much higher net worth than average. So, I'm posting this for all the lurkers in the forums, as well as the casual passers by who have debt.

Some basic steps for getting out of debt:

1) Get an emergency fund so you don’t take on debt when something comes up. Six months of expenses is optimal, but even a month or two is way better than nothing at all.

2) List your debts. By amount and interest rate. This way you know where you stand. This may be psychologically difficult, but the payoff for dealing with the debt is improved credit, more confidence and more freedom.

3) Use the debt snowball. Pay your debts from smallest to largest, or most expensive to least expensive.

4) Avoid new debt. No new credit cards or loans. Period. If you are in a hole, stop digging.

5) Go all cash. After everything is paid off, switch to all cash. This is especially the case if you have challenges with overspending. Psychologically, people view paper money as more real than electronic money, so they are less willing to part with it. Going to all cash should help you avoid overspending as you're letting psychology work for you, not against you.

This is a good list! Don't forget dropping some unnecessary expenses and doing some frugal things like making meals at home and taking lunch to work or school.